I want to create a payment schedule for my mortgage. Is there a mortgage amortization equation or formula which can help me?

Answer:

The
calculations for mortgage payments are not that difficult and in this article
we'll show you how to create a payment schedule using some simple equations.

Consider a
simple $100,000 mortgage, to be paid back in 10 yrs at 5% interest rate.

Note: For mortgages, even though the quoted interest rate is the annual
interest rate, it is not compounded
annually. In fact, for monthly payments, interest is compounded monthly. We will need to keep this fact in mind while
making calculations.

Now,
P= 100,000
r=5%=0.05
n=10x12= 120
i= r/12 =0.05/12
=0.004167

Where: P is the Principal amount; r is
the Annual Interest rate; n is the no. of compounding periods (in this case no.
of months); i is the Monthly interest rate.

There is a
simple formula that calculates the monthly payments needed to pay off a loan.
It is:

M = P [ i(1 + i)n
] / [ (1 + i)n - 1]
(M being the monthly payment)

Note: If you have MS Excel, you can find ‘M' in a minute. All you need to do
is use the following function: =PMT(i,n,P)

In our case, we find M= $1060.66

Each month the amount you pay back to your lender is made up of two
parts:

The first part is a bit
of the Principal you return to the lender i.e. the amount by which
Principal is lessened (amortized, to use accounting jargon) for the next
period.

The second part is the
amount you pay to the lender for borrowing his/her money i.e. the interest
payment.

Therefore ‘M' is a sum of the interest payment and the amortization of
Principal. Now we create a mortgage amortization schedule as follows: